Report: Mugabe's circle sitting pretty on $2b stolen diamonds

At least $2 billion worth of diamonds have been stolen from Zimbabwe's eastern diamond fields and have enriched President Robert Mugabe's ruling circle, international gem dealers and criminals, according to an organization leading the campaign against conflict diamonds.

Zimbabwe's Marange fields have seen "the biggest plunder of diamonds since Cecil Rhodes," the colonial magnate who exploited South Africa's Kimberley diamonds a century ago, charged Partnership Africa Canada, a member of the Kimberley Process, the world regulatory body on the diamond trade.

Zimbabwe's eastern Marange field - one of the world's biggest diamond deposits - has been mined since 2006 and its vast earnings could have turned around Zimbabwe's economy, battered by years of meltdown and political turmoil, the group said. But funds from the diamond sales have not showed up in the state treasury. Instead there is evidence that millions have gone to Mugabe's cronies.

The report, released Monday to coincide with the Zimbabwe government's conference on the diamond trade here in Victoria Falls, casts a shadow over the Mugabe regime's effort to win international respectability for its gem trade. Government officials at the conference denied the report's allegations as "totally false."

Mugabe pledged that Zimbabwe will soon have new law to ensure greater transparency and accountability in order to boost the "international reputation of our diamonds." Opening the conference, Mugabe said his government is committed to observing "international laws on diamond mining, storage and trading."

The report condemns the Mugabe government's control of the Marange diamond fields which have made Zimbabwe a major player in the international diamond trade.

"Marange's potential has been overshadowed by violence, smuggling, corruption and most of all, lost opportunity," the PAC report said.

"The scale of illegality is mind-blowing," and has spread to "compromise most of the diamond markets of the world," said the report.

The report describes the $2 billion lost to the Zimbabwe treasury as a "conservative estimate."

Finance Minister Tendai Biti said in his 2012 budget he had been promised $600 million in diamond revenue for the national treasury to help re-finance crumbling health, education and other public services. Biti said that only one-fourth of that pledge has been received.

Mines Minister Obert Mpofu, a Mugabe loyalist, insists that Western economic sanctions have prevented the government from getting good prices for the diamonds on the international market. But Mpofu has repeatedly refused to give exact figures on diamond revenues, said the PAC report.

Mpofu, the mines minister since 2009, amassed an unexplained personal fortune and is linked to a "small and tight group of political and military elites who have been in charge of Marange from the very beginning" and who are personally benefiting from the diamond sales, the report alleged.

In 2010 leading industry insiders, including Filip van Loere, a Belgian diamond expert working for the Mugabe government, forecast the country could produce as much as 30 million to 40 million carats a year, worth about $2 billion annually, the PAC report said. The diamonds are being mined and sold but the funds are not reaching the Zimbabwean treasury, according to the report.

Most of the diamond revenue is lost through a lack of transparency in accounting for how many diamonds are mined, how much is earned from their sales, the underpricing of gems on world markets, smuggling and a "high level of collusion" by government officials.

Records show that 10 million carats of Marange diamonds were exported to Dubai in late 2012 for $600 million, which the report said is an artificially low price because the same stones were sold for double their original price when they left Dubai for Surat, India - the world's biggest diamond cutting center. It says the gems should have been valued at $1.2 billion.

The low valuation lost the Zimbabwe nation considerable money and "underscores a price manipulation scheme perpetrated by Indian buyers and their Zimbabwe allies, with whom they are believed to share the spoils," the report said.

In addition, the report's researchers were unable to locate a 2.5 million carat stockpile, valued at around $200 million, which mysteriously disappeared in November 2011. It also charges that $300 million in diamond sales never made it to the Zimbabwe treasury in 2011.

The PAC's allegations are "totally false," said the chairman of one of the state-run diamond mining companies in Marange. Goodwills Masimirembwa, chief of Zimbabwe Mining Development Company, told The Associated Press that it was the first time he heard charges of diamonds disappearing.

"No diamonds have ever gone missing," said Masimirembwa. "When we are selling our diamonds all stakeholders, the police, revenue board and the country's mineral marketing body come together. So are they saying all these institutions are in collusion? Instead, let them come up with specific allegations, then the police will investigate."

The watchdog report also criticized the Kimberley Process for allowing Zimbabwe's diamonds to mined and sold in way that was not open to scrutiny.

"Calls for greater transparency have been dismissed within the Kimberley Process," it said.

"The lack of transparency surrounding Zimbabwe's diamond revenue is matter of critical public interest and amplifies concerns for some time that these revenues are funding a parallel government" of police and military officers and government officials loyal to Mugabe, many known to be building private mansions and buying luxury cars costing far in excess of their income from tax-funded salaries, said the report.